Bank Market Structure, Systemic Risk, and Interbank Market Breakdowns

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dc.contributor.author LUCCHETTA, Marcella
dc.date.accessioned 2010-10-05T08:22:24Z
dc.date.available 2010-10-05T08:22:24Z
dc.date.issued 2010
dc.identifier.issn 1028-3625
dc.identifier.uri http://hdl.handle.net/1814/14633
dc.description.abstract This paper explores theoretically the implications of bank market structure and banking system risks concentration for the functioning of interbank markets. It employs a simple model where banks are exposed to both credit and liquidity risk, there is no asymmetric information, no market power, no friction in secondary markets and deposit contracts are fully contingent. We show that (a) the concentration of risks induced by changes in bank market structure makes interbank market breakdowns more likely; (b) welfare monotonically decreases in risk concentration; and (c) risk concentration and a high probability of interbank market breakdowns can be driven by risk control diseconomies of scale and scope and increases in financial firms’ size. As banking systems become more concentrated, improvement of risk control technologies in financial institutions and in regulatory bodies appear as important as other policies considered in the literature to minimize the probability of interbank market breakdowns. en
dc.language.iso en en
dc.relation.ispartofseries EUI RSCAS
dc.relation.ispartofseries 2010/76
dc.subject bank market structure en
dc.subject systemic risk en
dc.subject interbank markets en
dc.title Bank Market Structure, Systemic Risk, and Interbank Market Breakdowns en
dc.type Working Paper en
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